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On Sunday, January 20th, a Kentucky FBS user received an unexpected and unwelcomed call: his farm shop and office had been destroyed by fire. Providentially no one was injured, but both facilities were a total loss due to fire, smoke and water damage.

Fortunately this farm has been diligent to maintain offsite backups and electronic document management, otherwise they would be facingcatastrophic business disruptionfrom irretreivable data. Because of this operation's foresight and planning their network and FBS Software were back up to pre-fire status by the next day.

We're aware many of you have combination shops/offices and encourage you to protect your records from the additional risks of shop fires on top of the "normal" dangers of computer crashes, lightning strikes and tornadoesby backing them up daily "off-site" or "in the cloud."

This month:

Plan to stop by the FBS booth at one of two outstanding trade shows this winter.

Learn how to account for two types of commodity hedges in our Best Practices section.

Colorado growers Judy and Don Rutledge stop by the FBS booth at the 2012 Commodity Classic.

Thousands of farmers from around the Nation will be attending the two biggest trade shows of the season. We invite you to stop by the FBS booth, grab a seat, stash your shopping bag and catch up on farming and software topics. Here's when and where you'll find us:

Savvy agricultural producers already understand how to use commodity futures and options to manage risk and thrive through volatile and uncertain conditions. They are supported today by a wide array of capable commodity advisers and risk management consultants. What's missing, however, are the management accounting processes to evaluate these "forward thinking" strategies.

Here are a few of the critical issues:

Just as cash/tax-basis financial statements hide and distort measurements of profit, tax-basis hedging gains/losses are recognized when the hedges are lifted rather than when the associated cash commodity is actually marketed or purchased.

Futures and option positions may be rolled several times between delivery months and/or contract types.

Delivery months and expiration dates vary from commodity to commodity.

The final challenge-especially for livestock producers who hedge feed as well as animals-is to match past and future trades to the appropriate inputs and delivery periods.

Fortunately the Farm Financial Standards Council (FFSC) is currently preparing guidelines for accounting treatment of agricultural hedges based on Generally Accepted Accounting Principles (GAAP). FBS has already incorporated these recommendations into our software as well as developed standard operating procedures for capturing, reporting and analyzing hedge activity.

In this and upcoming installments in our Best Practices series we'll describe these processes.

Two Kinds of HedgesThe FFSC and GAAP recognize two types of hedges: Fair Valueand Cash Flow.

Fair Value Hedges are recognized when a hedge instrument offsetsan inventory on hand (or a "firm commitment" to buy or sell). The best example for agriculture is when a hedge is initiated against acrop that has already been harvested and is available for immediate sale. Financial statements will then recognize the "fair value" of both the cash commodity and the futures contract by "marking them to market" on the balance sheet and realizing the gain/loss in the statement period.

With a "perfect hedge" the gain/loss of the futures contract will be offset exactly on the income statement and balance sheet by the gain or loss of the cash commodity. Note that this adjustment is triggered by an open, not closed position and should be immediately reversed at the beginning of the next accounting period.

Cash Flow Hedges, on the other hand, are used to establish a fixed price when future cash flows could vary due to changes in prices.

With cash flow hedges there are no market-ready inventories to "mark to market." Instead the product being hedged is either in a "work-in-process" stage (growing crops or livestock) or "forecast transaction" (a future crop, animal production or feed purchase).

Unlike fair value hedges unrealized gains/losses from hedging are posted to an "Other Comprehensive Income" equity accountinstead of being run through an income or expense account. Only when the hedge contract is closed and the offsetting cash contract initiated are the gain/loss on the commodity trade recognized.

If inventories are valued at cost, treat as Cash Flow Hedge ("Work In Process" inventory)

The table below compares and contrasts these two methods.

Meaningful management accounting for hedging activity utilizes different timing and levels of detail than tax accounting and must be kept segregated from tax records. In the following months we will cover the setup and processes for tracking, reporting and evaluating hedging activity.

February "One O'clock Webinars"

Saving and Recalling Data, February 4.

"Do's" and "Don't's" of Moving Between Accounting Years, February 11.

User Defined Help Menu--A Little-Known Secret Helper, February 28.

All webinars run between 1:00 pm and 2:00 pm CST. To register, e-mail support@fbssystems.com by 12:00 pm CST on the day of the webinar.

Q&A of the Month--Where's Your Data Directory?

Sarah Dixon, FBS Technical Services Manager.

Q. I get a lot of calls from frantic users who think they have lost their data because their data directory has been changed. This can happen due to many things and occurs frequently when updating to the new 8.13 version. If you take a moment and note where your data directory is it might save you some stress in the future!

A.FBS suggests that your data directory be a folder called DATA under your FBS program directory, but you can set it up to be anything you want it to be. The data directory is established when you first installed FBS. Even if you used FBS's suggested path, the data file under the program directory, everyone's path could have slight variations based on how long you have had your computer and how long ago you initially installed FBS on the computer it is currently running on. That's because awhile back we changed our default program directory from FBSWIN to FBSWIN81.

To figure out what your data path is open FBS and on the Change Company screen it will show you your data directory. In the right window it will start from the top and tell you what drive it is saved on and then you can see by looking at the open file folders what file your data is in. In the example below my data path is not the suggested path. Instead it's C:\users\sarah Dixon\desktop\data (I get the path by following the list of folders)

This next example is what we recommend for a data path: C:\FBSWIN81\data. You will notice that there is a folder under data but the icon for the folder does not appear "open" so it is not part of my data path.

Both paths work; you just need to know where you have your data and where you data directory is. So I recommend taking a look at your Select Company screen and writing down your data path and keeping it somewhere safe for future reference.

One last thing to remember is that when you are trying to open your data directory you must click in the white box on the left hand side to refresh the list. You must click in the box underneath the words "Create New Company" to have the data sets in the folder you have selected on the right to show up. Understanding how to locate your data directory will save you stress in the future!

Sincerely,

FBS Systems

FBS Systems, Inc.
1855 55th Ave
Aledo,
IL
61231
US

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